FDI Generating Economic Growth & Employment in BD Post-Budget Challenges – Md. Imran
From late 80s to early 90s, Foreign Direct Investment (FDI) earned enormous popularity in international trade and finance.Worldwide trade liberalization paved the way of remote investment. It had multifaceted impacts on destined investment locations. Bangladesh also started to experience FDI inflow with decreasing outflow of foreign aids and grants since late 90s. Bangladesh is about outstripping its Least Developing Country (LDC) status to developing country by 2024. Bangladesh needs immense investment from home and abroad to meet this developing country identity. Regrettably Bangladesh still faces various problems regarding sustainable development. Mass unemployment in youths is the most concerning aspect in Bangladesh. FDI plays an important role to accelerate economic growth and employment generation that is why we have to take FDI seriously. Recent proposed budget for FY 19-20 has got mixed reaction from FDI perspectives. This article would deal with-
♠ Defining Foreign Direct Investment
♠ FDI in Bangladesh and post-budget debate regarding FDI
♠ Employment Generation through FDI and remained Challenges
Defining Foreign Direct Investment:
Foreign direct investment is different from other investment. FDI is complex depending on engagement, location and amount of share. There are various definitions of FDI. In simple terms, FDI is a kind of international investment which takes place in overseas from investors’ origin countries. IMF adds that this investment must have a long lasting interest. Lasting interest indicates a strong relation between investors and the investment. Though investing sites are situated in foreign countries but patron country must have supervision over managerial sectors of those investments. Organization for Economic Co-operation and Development (OCED) maintains direct investment should have at least 10% share or voting ownership of enterprises by an investor in overseas to distinguish from portfolio investment. Actually this amount of share asserts significant amount of influence on the investment management. Three components of FDI are equity capital, reinvested earnings and intra-company loans. Reinvested earning is the single biggest source of FDI in Bangladesh.
Basically lower production cost (academically absolute advantage) attracts investors to invest in foreign countries instead of country of resident. However, FDI can take place through building firms or factory in destined countries or acquiring local firms through merging. Recent buying of Bangladeshi Akij Group’s tobacco business by Japan Tobacco Inc. is an example of acquisition through FDI.
FDI in Bangladesh and post-budget debate regarding FDI
United Nations Conference on Trade and Development (UNCTAD) has recently published World Investment Report 2019. Overall data show a downturn in foreign direct investment around the world. Astonishingly Bangladesh was quite successful to attract a record amount of FDI in 2018. Bangladesh geared up 68% FDI increment in 2018 comparing to 2017. Bangladesh received 3.61 USD FDI inflows while reduced FDI outflows at the same time. Bangladesh is now the second largest FDI hosting country in South Asia after India.
Experts on economic investment point out Bangladesh’s policy reformation considering FDI was blessing. Government’s initiatives relating to overall economic environmental stability gave a big boost to this hike. Skyrocketing economic growth, adequate potential cheap labor force, government’s modest hospitality to foreign investors, Special Economic Zones (SEZs), one-stop service to avoid red tapism accelerating service facilities for investors, sizeable growing domestic market, political stability, tax exemptions, opportunities in investing stock market, and flexible entry and exit are a few recent developments in Bangladesh which incite FDI.
Finance Minister AHM Mustafa Kamal has proposed initial budget of Tk. 5, 23,190 crore in parliament on June 13 for the financial year of 2019-20. This budget had cut both positive and negative reactions from various entities. Apart from those debates, I would limit myself to the impact of taxation on retained earnings of multinational companies and its impact on FDI. Government has imposed 15% tax on retained earnings of multinational companies. Basically MNCs reserve a portion of earned money to reinvest. Almost 40% investment money comes from this sector. Foreign companies consider this taxation as a burden and disincentive for further reinvestment in Bangladesh. Foreign Investors’ Chamber of Commerce and Industry (FICCI) raised concern about going out of this money without being invested in Bangladesh. Their concern is not baseless since double taxation de-motivates investors. Prime Minister’s adviser on private sector development, Salman F Rahman has already given a hint of withdrawing this taxation from final budget. Rising demand from investors would compel government retreating from its stance as Bangladesh needs more and more foreign investment to meet its economic and workforce thirsts. Overall budget is growth friendly and flexible to FDI. But challenges are not over yet to attract FDI for Bangladesh.
Employment generation through FDI and remained challenges
Bangladesh is blessed with huge population while having scarce land and limited capital. It is moving so high in terms of economic growth but number of employment vacancy is very disappointing in recent time. One economist defines this situation as a jobless growth. Bangladesh still faces problem with adequate proper workplaces that is why almost 2.6 million youths are out of formal job while millions are struggling in informal job sectors. There are various reasons behind it.
We cannot reach any single conclusion stating unemployment problem in Bangladesh. Once education seemed the golden pathway of employment creatrion. Unfortunately educated youths are burden and most unlikely to get job in current job market. Pouring more capital in investable secors is necessary to create employment. Local private sectors are still underrated in Bangladesh. Industrialization could not find stronghold here. Foreign direct investment has a great deal of investment capability by flowing capital since labour force has a higher level of potentiality. Studies show a positive impact of FDI in Bangladesh producing economic growth and employment. Almost a large portion of economists belive that Bangladesh has been succesfully benefited through avoiding pitfalls of FDI.
We have no exact figure or data about employment generation by FDI alone. But sector wise FDI and its worforce size analysis may provide a snapshot. The Bangladesh Textile Mills Association analyzed investment data from 2014-2018 show that average 1380 crore taka equvalent 163 million USDwas invested locally in textile industry per annum. Sctor wise FDI statistics in 2018 shows that textile industry received almost 408 milion dollars at the same time. Bangladesh Garment Manufacturers and Exporters Association (BGMEA) estimates that there are 40 lakhs people employed in Bangladesh garment industry those who are mostly women. So we can simply understand the contribution of FDI in job creation while upholding women empowerment to some degree. There is a debate of lower wage and working safety in garment industry but we cannot forget that something is better than nothing. Contribution of FDI in power, food and telecom sectors are high. So it is very understandable that FDI creates more and more jobs in Bangladesh while advancing economic growth. Bangladesh has created a record in FDI acquisition in 2018 but its rival developing countries like Vietnam secured 35.46 billion dollars in 2018 where Bangladesh comparatively received only 3.61 billion USD in the same year. We can learn from Vietnam in which FDI generated economic growth and employment. Almost, 6.3% of whole GDP and 25% national investment of Vietnam were contributed by FDI in 2015 generating nearly 3.5 million direct and 4 million indirect jobs. Bangladesh has full potentiality to manage capital investment to create further value like Vietnam. Bangladesh needs to project its market to investors since it is committed to create 3 crore jobs by 2030 after budget proposal this year. For now today’s competitive world, attracting FDI is an art of economic diplomacy along with material incentives for investment. Bangladesh has already provided an investment friendly market but still has a lot to do. Bangladesh ranked 177 out of 190 in World Bank Group’s Doing Business report 2019 and also ranked 149 out of 180 countries for its higher corruption level. Surely these lackings cut bad image of Bangladesh as an investment place. We should remember that more FDI would generate more employment and economic growth as abovementined graph shows. So, challenges should be overcome to atract investors. Consistent policy taking and on time implementation is desperately needed.
Beginning of trade war between USA and China reminds us that this era is all about economics unlike cold war which was highly politics centric. Political economy is now the driving force of international relations. Once multilateral approach was effective in trade negotiation under WTO but now bilateral and regional arrangements are preferable. Bangladesh is on its way to sign FTA with a few countries. Bangladesh should be active in economic diplomacy by advancing policy of production, investment, movement or exchange of goods, services, labour and investment. Good news is that Bangladesh has partly come out from its tradtional parteners in investment. This is not USA or Uk but China and Netherlands are top foreign investing countries in Bangladesh.
Bangladesh also needs to create a good image around the world as it has might and capability to host FDI effeciently. Media and international economic forums are two crucial parts of branding this image. Bureaucratic meddling should be minimized by accelerating policy implementation manitaing highest level of trasnparency. Infrastructe situation is still fragile. Unfinished projects and SEZs (including sea port) should be acomplishedfirst as soon as possible to connect Bangladesh economy wholly. Bangladesh gvernment pledged to build 100 special economic zones by 2030 but only 39 zones have been operationalized yet. Intersetingly plannedBangabandhu Sheikh Mujib Shilpa Nagar in Mirsari alone is expected to provide 1.5 million jobs within 15 years and amounting 15 billion exports. Bangladesh needs to create a feasible roadmap to open up opportunities for foreign investors. Services(e.g electricity, gass) related to production should be make sure to attract FDI arrangements. Skills with innovations and speeds should be accelerated among labous because unskilled labours cannot provide sustainability in long run. Efficient management of human resources is crucial in this run. Finally author of this paper would like conclude claiming that Bangladesh has potentiality to host further FDI like Vietnam which would generate economic growth and employment at the same time.
The author is studying International Relations at University of Dhaka.